Staples Inc. agreed to buy Office Depot Inc. for $11 a share, or an equity value of about $6.3 billion, in a deal that would reduce the U.S. office-supply industry to a single major chain.
Office Depot shareholders will get $7.25 in cash and 0.2188 of a share in Staples stock at closing, the retailers said in a statement Wednesday. It represents a premium of 44 percent over Office Depot’s closing share price on Feb. 2.
The two companies, which forged the merger after pressure from activist investor Starboard Value, would create a retail chain with about $39 billion in revenue and thousands of stores. The deal will draw scrutiny from the Federal Trade Commission, though regulators have been increasingly willing to approve retail mergers in light of burgeoning e-commerce competition.
Ron Sargent, chief executive officer of Framingham, Massachusetts-based Staples, said the purchase would help it cope with a “rapidly evolving competitive environment,” letting the retailer expand into new product categories and cut costs.
“This is a transformational acquisition,” he said in the statement. “We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses.”
Office Depot soared 22 percent to close at $9.28 on Feb. 3 after reports of the merger talks. Staples had a market value of $12 billion based on Tuesday’s closing price. Office Depot, based in Boca Raton, Florida, was pegged $5 billion.
The FTC previously approved the merger of Office Depot and OfficeMax, the industry’s second- and third-biggest chains, in 2013. The issue now is whether consumers will be harmed by bringing the industry down to one chain.
“The FTC’s key question likely will be whether there is anything special about competition from office-supply superstores, such that reducing the number of competitors in that channel to one will result in higher prices to at least some consumers for at least some prices,” Amanda Wait, a former FTC lawyer who is now a partner at Washington-based Hunton & Williams LLP, said earlier this week.
Staples said on Wednesday that it expected to deal to close by the end of this year. Barclays Plc is serving as the company’s financial adviser, with Wilmer Cutler Pickering Hale and Dorr LLP and Weil, Gotshal & Manges LLP providing legal assistance. Office Depot received financial advice from Peter J. Solomon Co. and legal counsel from Simpson Thacher & Bartlett LLP.
Staples obtained financing from Barclays and Bank of America Corp. in the form of a $3 billion credit line and a $2.75 billion six-year term loan. As part of the transaction, Staples will add two Office Depot directors, bringing its board to 13 members.
Starboard, an investor with stakes in both retailers, sent a letter to Sargent last month demanding that his company engage advisers to work on a deal. Starboard had estimated that the combination could deliver more than $2 billion in cost savings.
At the time, Staples gave a tepid response to Starboard, saying it had already met with the investment firm on several occasions to consider ideas. It didn’t discuss its willingness to make a deal.
Starboard previously pushed for the merger of Office Depot and OfficeMax, and investors have speculated that it could replicate that strategy with Staples. New York-based Starboard has said it owns about 6 percent of Staples and almost 10 percent of Office Depot.